Managerial Decision Making
Exam Answer Key
Course Introduction
Managerial Decision Making explores the processes and tools managers use to make effective and ethical decisions within organizations. The course integrates concepts from psychology, economics, and organizational behavior to analyze how managers identify problems, evaluate alternatives, and implement solutions in complex business environments. Through case studies and real-world examples, students learn about decision-making frameworks, biases and heuristics, risk assessment, group decision dynamics, and the impact of uncertainty. Emphasis is placed on developing analytical and critical thinking skills necessary for sound, evidence-based managerial decisions that align with organizational objectives.
Recommended Textbook
Economics for Managers 3rd Edition by Paul
G. Farnham
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Chapter 1: Managers and Economics
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68 Verified Questions
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Sample Questions
Q1) To develop a competitive advantage and increase their firm's profitability, managers need to understand what affects their revenues, costs, and their ability to set prices.
A)True
B)False
Answer: True
Q2) If a country's national government wants to stimulate spending in the economy, it should:
A)decrease taxes and increase government spending.
B)increase taxes and decrease government spending.
C)increase taxes and government spending.
D)decrease taxes and government spending.
Answer: A
Q3) According to the circular flow model, an increase in spending by businesses on productive resources would cause the income and spending of consumers to increase.
A)True
B)False
Answer: True
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Chapter 2: Demand, Supply, and Equilibrium Prices
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Sample Questions
Q1) Define the concept of demand and explain, on an intuitive level, why the demand curve for a good is downward sloping.
Answer: Demand refers to relationship between the price of a good and the quantity consumers are willing and able to buy at each price.It is assumed that there is an inverse relationship between price and quantity demanded.The intuitive explanation is that as the price of a good falls, consumers' purchasing power increases.At the same time, the good becomes cheaper relative to its substitutes.For these reasons, consumers are willing to buy more of the good.
Q2) When the supply of a good increases, the quantity supplied at each price is increasing as well.
A)True
B)False
Answer: True
Q3) DSL and broadband internet service would be considered an example of:
A)substitute goods.
B)giffen goods.
C)inferior goods.
D)complementary goods.
Answer: A
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Chapter 3: Demand Elasticities
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Sample Questions
Q1) The results of studies of the tobacco industry suggests that college and secondary school students who smoke are much more likely to respond to a change in price than adults who smoke.
A)True
B)False
Answer: True
Q2) If the percentage change in quantity demanded is less than the percentage change in price, we would say that over this range, demand is:
A)elastic.
B)unit elastic.
C)inelastic.
D)perfectly elastic.
Answer: C
Q3) In the case of a linear demand curve, average revenue is equal to price, while (with the exception of Q = 1)marginal revenue is less than price.
A)True
B)False
Answer: True
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) In which of the following situations would reliance on expert opinion as a basis for a managerial decision be most preferred?
A)When the product can be packaged with a variety of price and quality combinations.
B)When the business in question serves as a supplier of inputs to other businesses, especially in multi-product situations where other strategies may be prohibitively expensive.
C)When the level of economic activity can have a significant effect on the demand for the firm's output.
D)When the product being marketed is relatively new.
Q2) The ratio of the regression coefficient to its standard error is called:
A)t-statistic.
B)F-statistic.
C)partial F-statistic.
D)coefficient of determination.
Q3) Briefly describe the three key points managers must consider when using expert opinion, consumer surveys, test marketing, and price experiments in analyzing consumer behavior.
Q4) Why are estimated models of demand and consumer behavior useful to managers?
Page 6
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Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) Refer to Scenario 2.Diminishing marginal returns starts to occur between units:
A)2 and 3.
B)3 and 4.
C)4 and 5.
D)5 and 6.
Q2) Production functions A and B result in the same average total costs of production.However, production function A is twice as capital intensive as production function B.In this case, all else constant:
A)marginal costs will be higher in A than they are in B.
B)marginal costs will be higher in B than they will in A.
C)because total costs are equal, marginal costs will be equal for the two production functions as well.
D)there is no way to say anything about the relative marginal costs of production in the two production functions without additional information.
Q3) Refer to Scenario 1.What is the marginal product of the third hour of labor? A)60
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) X-inefficiency refers to the situation in which:
A)highly competitive firms have less incentive to minimize their costs of production than other firms because the highly competitive firms have almost no chance to earn above-average profits.
B)firms are unable to minimize their costs of production because there is no potential for input substitution.
C)firms that use labor-intensive production methods tend to be less efficient than firms that use capital-intensive production methods.
D)firms with market power have less incentive to minimize their costs of production than more competitive firms.
Q2) Explain how "learning by doing" and transportation costs each affect the long-run average cost curve.
Q3) In the long-run average cost function, only the amount of capital is allowed to vary. A)True
B)False
Q4) Explain why X-inefficiency is likely to be more prevalent in an industry in which firms have market power.
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Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) The characteristic of ease of entry and exit ensures that perfectly competitive firms will be able to earn positive economic profits over the long run.
A)True
B)False
Q2) Assume there is an increase in the number of consumers in the market for a good sold by perfectly competitive firms that are initially producing the profit-maximizing level of output.For the individual firm, this would result in:
A)a decrease in both price and the profit-maximizing quantity of output.
B)a decrease in price and increase in the profit-maximizing quantity of output.
C)an increase in both price and the profit-maximizing quantity of output.
D)an increase in price and decrease in profit-maximizing quantity of output.
Q3) Assume a firm is facing the following situation: At Q = 1,000, P = $10, MC = $10, ATC = $18, and AVC = $16.This firm should shut down and, in so doing, limit its losses to $2,000.
A)True
B)False
Q4) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) Which of the following statements regarding the requirement that a firm be granted a license to operate in a particular market is false?
A)Advocates of licensing maintain that the practice is necessary to maintain quality of service.
B)One of the economic effects of a license requirement is to constrain the available supply of the affected good or service.
C)The requirement that they be licensed ensures that the affected firms will be able to earn a positive economic profit.
D)Relaxing certain licensing requirements should increase the supply of the affected good or service.
Q2) In order to use lock-in as a competitive strategy, firm managers should be prepared to do all of the following except:
A)invest in a given base of customers by giving concessions initially.
B)avoid selling complementary products and access to the customer base.
C)be the first to bring a new type of product to market.
D)use loyalty programs as part of an entrenchment strategy.
Q3) Explain how network externalities act as a barrier to entry.
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Page 10
Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) To maximize joint profits, a cartel must determine the level of output at which:
A)joint marginal revenue equals the marginal cost of the largest member of the cartel.
B)marginal revenue equals joint marginal cost.
C)the horizontally sum of the members marginal cost curves is at a minimum.
D)joint marginal revenue equals the marginal cost of the smallest member of the cartel.
Q2) In the case of Matsushita v.Zenith, the fact that the foreign television manufacturers were able to charge lower prices than their domestic competitors in the U.S.market for televisions was sufficient evidence to conclude that the Japanese firms were engaged in predatory pricing.
A)True B)False
Q3) A predatory pricing strategy will have the greatest chance of success when the predatory price is set below the cost of the firm's competitors, new rivals are unlikely to enter after the strategy ends, and profits can be recouped in a relatively short period of time.
A)True
B)False
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Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) The practice of charging different prices to various groups of customers that are not based on differences in the costs of production is referred to as:
A)predatory pricing.
B)markup pricing.
C)discretionary pricing.
D)price discrimination.
Q2) Which of the following is not cited as a reason for a firm to pursue a group pricing strategy?
A)To minimize its total costs of production.
B)To increase its total profit.
C)To attract and lock in additional customers.
D)To create network externalities.
Q3) Applying a uniform markup to each of a firm's products is less profitable than varying the markup based on the elasticity of demand because the latter is able to exploit the sensitivity of quantity demanded to a change price.
A)True
B)False
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Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) The unemployment rate is calculated as follows:
A)labor force/number of unemployed.
B)labor force participation rate/number of unemployed.
C)number of unemployed/labor force.
D)number of employed/labor force.
Q2) Why are transfer payments excluded from government expenditure in the national income accounts?
Q3) GDP may be computed using the expenditure or value-added approaches.
A)True
B)False
Q4) When shopping the consumer is interested in absolute prices.
A)True
B)False
Q5) The labor force in country XYZ is 10,000,000 and the number of employed is 7,000,000.Calculate the number of unemployed and the unemployment rate.
Q6) What is the relationship between unemployment and the price level in the short run?
Q7) What are some of the issues associated with the consumer price index?
Q8) What are the costs associated with inflation?
Page 13
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Chapter 12: Spending by Individuals, Firms,
and
Governments on Real Goods and Services
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Sample Questions
Q1) The role of the costs of capital is influenced by the degree to which firms can substitute capital for other inputs of production known as relative prices.
A)True
B)False
Q2) Any uses of current income for purposes other than purchasing currently produced domestic goods and services are called an injection.
A)True
B)False
Q3) Increased profits provide more internal funds to finance capital investments and a major factor in lenders' and investors' decisions to provide external funds to the firm.
A)True
B)False
Q4) Increase in the real interest rate will ________ the expenditure curve:
A)decrease.
B)increase.
C)not change.
D)none of the above.
Q5) Briefly explain how capacity utilization rates are used by forecasters.
Page 14
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) The monetary base consists of:
A)currency plus reserves.
B)currency plus required reserves.
C)currency plus excess reserves.
D)currency plus demand deposits.
Q2) In the money market, an excess supply of money is equivalent to an excess supply of bonds.
A)True
B)False
Q3) The opportunity cost of hold real money balances is the:
A)interest rate.
B)price level.
C)all of the above.
D)none of the above.
Q4) Large denomination time deposits are included in:
A)M1.
B)M2.
C)M3.
D)L)
Q5) Define the three functions of money.
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) An increase in wealth would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
Q2) If there is an autonomous decrease in spending (a leftward shift in the aggregate demand curve)and the Fed wishes to hold real income constant, then the Fed would:
A)decrease the money supply yielding a leftward shift in the aggregate demand curve.
B)increase the money supply yielding a rightward shift in the aggregate demand curve.
C)hold the money supply constant.
D)none of the above.
Q3) Why did the Fed shift its policy target towards the federal funds rate.
Q4) Average duration of unemployment is an example of a:
A)leading indicator.
B)coincident indicator.
C)lagging indicator.
D)none of the above.
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Sample Questions
Q1) If net capital flow were zero for a country, then exports would not equal imports.
A)True
B)False
Q2) Using the foreign exchange market diagram, graphically illustrate and explain the impact of U.S.interest rates that exceed foreign interest rates, all else constant, on the exchange rate.
Q3) Changes in domestic and foreign income result in:
A)movements along the demand and supply curves of the foreign exchange market.
B)shifts in the demand and supply curves of the foreign exchange market.
C)all of the above.
D)none of the above.
Q4) A lending of a country's savings that occurs when the country has a trade deficit and its citizens purchase real and financial assets from abroad is called a capital inflow.
A)True
B)False
Q5) What is the difference between a sterilized and non-sterilized central bank intervention in the foreign exchange market?
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) In 2012, all of fast-food chains expanded their hours of operation, with nearly 40% of all McDonald's restaurants being open 24 hours per day.This strategy was aimed at increasing sales because:
A)it was estimated that nearly one-fifth of all employed Americans worked primarily in the evening contributing to the demand for fast-food in late hours.
B)it was estimated that consumers who shop at night tend to be more price sensitive.
C)it was believed that longer hours of operation would lead to greater brand loyalty.
D)none of the above.
Q2) As McDonald's expanded globally, it was able to achieve:
A)economies of scope.
B)economies of scale.
C)diseconomies of scale.
D)none of the above.
Q3) How did McDonalds address the obesity issue in China?
Q4) If a good is price inelastic, an increase in price will decrease total revenues.
A)True
B)False
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